Seneca Corporation Has the Following Balance Sheet Accounts Immediately Preceding

question 61

Essay

Seneca Corporation has the following balance sheet accounts immediately preceding an investing and financing decision:
A long-term debt covenant specifies that Seneca's debt/equity ratio cannot be greater than 1.0 and current ratio cannot be less than 2.0.
Seneca is going to invest $600,000 in a new machine that will keep Seneca Corporation in an excellent competitive position in a very competitive industry. In order to finance this investment, Seneca will use its cash, issue long-term debt, and issue common stock. However, besides having to adhere to the debt covenants, Mr. Seneca, the sole owner of Seneca Corporation, will not issue more than $100,000 of common stock so that he can retain at least a 50% ownership in his corporation.
Can Seneca Corporation finance the $600,000 investment and still adhere to the debt covenants and allow Seneca to retain at least 50% ownership? If Seneca cannot finance the machine within the parameters given, suggest possible means for Seneca to finance the needed acquisition of the machine.

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Definitions:

Schema

In cognitive psychology, a pattern of thought or behavior that organizes categories of information and the relationships among them.

Covered Up

Refers to actions taken to conceal, hide, or obscure something, typically to prevent information or the truth from being known.

Equilibration

A cognitive development process described by Jean Piaget in which individuals reconcile new information with their existing cognitive schemas, achieving a balance or equilibrium between assimilation and accommodation.

Intellectual Growth

The process of acquiring knowledge, understanding, and critical thinking skills, leading to the development of the mind.